Maven Income and Growth VCT 2 PLC Annual Financial Report (0528F)

TIDMMIG2

RNS Number : 0528F

Maven Income and Growth VCT 2 PLC

12 May 2017

Maven Income and Growth VCT 2 PLC

The Directors announce the Company's results for the year ended 31 January 2017

Highlights for the Year

   --      NAV total return of 99.24p per share (2016: 97.45p) at the year end 

-- NAV at year end of 50.52p per share (2016: 52.98p) after payment of dividends totalling 4.25p per share during the year

   --      Six new VCT qualifying private equity investments added to the portfolio 
   --      Strong pipeline of VCT qualifying private equity investments 
   --      Realisation of Nenplas, achieving a total return of 5.0 times cost 
   --      Disposal of Dantec Hose, generating a total return of 2.1 times cost 
   --      Proposed final dividend of 2.25p per share (2016: 2.25p) 

Chairman's Statement

On behalf of your Board I am pleased to report on the further progress achieved in the year to 31 January 2017. During the period under review NAV total return increased to 99.24p per share, reflecting the strength of the underlying portfolio. The profitable realisations of several of the more mature investments have helped to maintain the steady increase in NAV total return. Your Board is mindful of the importance of dividend payments to Shareholders and, in recognition of the performance achieved, is recommending a final dividend of 2.25p per share. This represents a full year distribution of 4.25p per share, equivalent to an annual tax-free yield of 9.66%, based on the share price at the year end.

The reporting period has been one of considerable change for the UK VCT industry following the enactment of the revised VCT legislation in November 2015. The new rules have introduced a number of restrictions on the types of transactions and companies in which VCTs can invest, requiring the Manager to focus on the provision of development capital, or investing in businesses with growth finance requirements, rather than management buy-outs or acquisition based transactions which have traditionally offered a more predictable return profile. The investment team at Maven is highly experienced at sourcing and executing transactions that meet the revised criteria, and the Board is pleased to report that six new VCT qualifying investments were completed during the year. The Directors are also encouraged by the large and diverse pipeline of prospective new investments, at various stages of due diligence, and anticipate seeing a number of these transactions complete during the first half of the current financial year.

The Board believes that considerable progress has been achieved by your Company during the reporting period, despite the challenges presented by the implementation of the revised VCT legislation and the economic uncertainty resulting from the outcome of the European Union (EU) referendum in June 2016. Against this backdrop, the core portfolio has continued to perform well, as can be seen from the detailed analysis included in the Investment Manager's Review in the Annual Report. The continuing growth experienced by a number of private company holdings has enabled the valuations of these assets to be increased, reflecting positive trading results. The Board also remains conscious of the impact that the low oil price is having on companies with exposure to the energy services sector and whilst direct remedial action has been taken by those investee companies with exposure, the external environment has continued to be challenging and is likely to remain so until at least the second half of 2017. As such, the valuations of a number of these investments have been conservatively reduced to reflect the prevailing market conditions.

A number of profitable realisations were achieved during the reporting period, most notably the exit from Nenplas which completed in December 2016, achieving a total return of 5.0 times cost over the life of the investment. The Directors are also aware that discussions are in progress regarding potential exits from several of the more mature assets, although there can be no certainty that these will lead to profitable realisations.

Whilst the full impact of the UK's decision to leave the EU will become clearer once formal negotiations commence, the Board and the Manager have conducted a review of the Company's assets and, at present, believe that any overall effect is not likely to be significant. The businesses in which your Company has invested will maintain or adapt their growth strategies as appropriate, with a number of exporters already seeing a short-term benefit from the devaluation of Sterling against several major currencies that has occurred since the referendum in June 2016.

The Board is pleased to note that, in June 2016, Maven received industry recognition for its performance when it was named Private Equity House of the Year, for the second year running, at the 2016 High Potential Business Awards (previously the M&A Awards). This category celebrates outstanding growth businesses and their financial backers, recognising private equity managers that have displayed the keenest judgement and opportunism in completing acquisitions or exit transactions. Maven was also named Private Equity Manager of the Year at the ACQ Global Awards which celebrate achievement and innovation across the fund management industry.

The Board recognises the excellent work done by the management and staff at Maven and is pleased to acknowledge the industry's recognition of your Manager.

Dividends

The Board recommends that a final dividend of 2.25p per Ordinary Share, comprising 0.20p of revenue and 2.05p of capital, be paid on 23 June 2017 to Shareholders on the register at 26 May 2017. This would bring total dividends for the year to 4.25p per share representing a yield of 9.66% based on the year-end closing mid-market share price of 44.00p. The effect of paying the proposed final dividend would be to reduce the NAV of the Company by the total cost of the distribution.

Since the Company's launch, and after receipt of the proposed final dividend, Shareholders will have received 50.97p per share in tax-free dividends. The Board considers it important for Shareholders to be aware that the move to invest in development capital and growth finance opportunities, as required by the revised VCT legislation, is likely to result in less predictable capital gains and income flows, with the result that the quantum and timing of future dividend payments could be subject to fluctuation.

Fund Raising

As the Company currently enjoys significant cash liquidity for new investment, the Board has elected not to raise further funds at present.

Share Buy-backs

Shareholders should be aware that the Board's primary objective is for the Company to retain sufficient liquid assets for making investments in line with its stated policy and for the continued payment of dividends. However, the Directors also acknowledge the need to maintain an orderly market in the Company's shares and have delegated authority to the Manager to buy back shares in the market for cancellation or to be held in treasury, subject always to such transactions being in the best interests of Shareholders.

It is intended that, subject to market conditions, available liquidity and the maintenance of the Company's VCT status, shares will be bought back at prices representing a discount of between 10% and 20% to the prevailing NAV per share.

Regulatory Developments

As previously reported, the Finance Act (No. 2) 2015 was enacted in November 2015 and introduced a number of changes to the legislation governing VCTs. The new rules are designed to bring the UK VCT scheme into line with EU State Aid Rules for smaller company investment and have introduced a number of restrictions on the types of qualifying transactions and companies in which VCTs can invest. Unlike previous changes in legislation, the new rules apply to all funds raised by a VCT, including those raised prior to November 2015, although existing investments, completed prior to the legislation change, are unaffected.

The new rules specifically prohibit participation in management buy-outs or acquisitions, and limit the ability to support older companies unless specific criteria are met. The emphasis is, therefore, on providing development capital to younger and earlier stage companies, or supporting more established businesses which can demonstrate growth strategies that satisfy specific provisions under the revised qualification criteria. In a further amendment, the March 2016 Budget Statement included changes to the rules governing non-qualifying investments by VCTs. With effect from 6 April 2016, VCTs have only been able to make qualifying investments and certain limited investments for liquidity purposes, with other types of new non-qualifying investments now prohibited.

The revised legislation has imposed additional diligence and administrative requirements on the investment process in order to ensure that all aspects of the potential investment and transaction structure remain compliant with the new rules. The Manager continues to pursue a cautious approach and works closely with a specialist VCT adviser, engaged by the Company, to assist in interpreting the revised legislation and advising on the VCT tax clearance process with HM Revenue & Customs (HMRC), with advance assurance secured prior to any new investment completing. The Board welcomed the announcement in the Chancellor's 2016 Autumn Statement that, in response to the increased volume of applications submitted and the resultant delays experienced in obtaining clearance for proposed investments, a consultation is being carried out to consider the options for streamlining the HMRC advance assurance service.

The 2016 Autumn Statement highlighted that the Government will no longer be initiating a review of the provision allowing replacement capital in certain new VCT transactions, but suggested that this may be reviewed at some point in the future. Whilst the Directors and the Manager were disappointed by this announcement, as the ability to include replacement capital was viewed as an important flexibility under the new rules, it does not impact the Company's investment strategy which has already adapted to meet the requirements of the new rules. The Chancellor's 2017 Spring Statement did not introduce any further amendment to the VCT legislation.

Annual General Meeting (AGM)

As indicated in previous Annual Reports, in order to allow a wider range of Shareholders the opportunity to meet the Directors and the Manager, it is intended that AGMs will be held in Glasgow and London in alternate years. Therefore, the 2017 AGM will be held in the London office of Maven Capital Partners LLP on 14 June 2017, and the Notice of Annual General Meeting can be found in the Annual Report.

The Future

Your Board remains committed to the strategy of building a large and diversified portfolio of income generating private company holdings capable of supporting attractive tax-free distributions to Shareholders. Whilst the introduction of the new VCT rules has placed restrictions on the types of transactions and companies in which the Company can invest, the Directors are encouraged by the progress achieved during the reporting period. The completion of six new VCT qualifying investments, together with the strong and growing pipeline of potential opportunities at various stages of the diligence process across Maven's regional office network, demonstrates the flexibility of its approach, which has adapted well to meet the regulatory changes while also delivering the investment objective.

Over the coming years the portfolio will continue to evolve as selective high growth VCT qualifying opportunities are added, whilst the more mature assets naturally progress to exit. This gradual rebalancing of the asset base may have an impact on the quantum and timing of future Shareholder distributions, as the proportion of earlier stage investments increases. However, the Directors believe that the strength of the underlying portfolio, which consists of a larger proportion of investments completed prior to the rule changes, is capable of maintaining an attractive dividend policy.

John E Lawrence MBE

Chairman

12 May 2017

Business Report

This Business Report is intended to provide an overview of the strategy and business model of the Company as well as the key measures used by the Directors in overseeing its management. The Company is a venture capital trust which invests in accordance with the investment objective set out below.

Investment Objective

The Company aims to achieve long-term capital appreciation and generate maintainable levels of income for Shareholders.

Business Model and Investment Policy

Under an investment policy approved by the Directors, the Company intends to achieve its objective by:

-- investing the majority of its funds in a diversified portfolio of shares and securities in smaller, unquoted UK companies and AIM/ISDX quoted companies which meet the criteria for VCT qualifying investments and have strong growth potential;

-- investing no more than GBP1 million in any company in one year and no more than 15% of the Company's assets by cost in one business at any time; and

-- borrowing up to 15% of net asset value, if required and only on a selective basis, in pursuit of its investment strategy.

Principal Risks and Uncertainties

The principal risks and uncertainties facing the Company are as follows:

Investment Risk

Many of the Company's investments are in small and medium sized UK unquoted and AIM/ISDX quoted companies which, by their nature, entail a higher level of risk and lower liquidity than investments in large quoted companies. The Board aims to limit the risk attaching to the investment portfolio as a whole by ensuring that a structured selection, monitoring and realisation process is applied. The Board reviews the investment portfolio with the Manager on a regular basis.

The Company manages and minimises investment risk by:

   --     diversifying across a large number of companies; 
   --     diversifying across a range of economic sectors; 
   --     actively and closely monitoring the progress of investee companies; 

-- seeking to appoint a non-executive director to the board of each private investee company, provided from the Manager's investment management team or from its pool of experienced independent directors;

-- co-investing with other funds run by the Manager in larger deals, which tend to carry less risk;

   --     not investing in hostile public to private transactions; and 

-- retaining the services of a manager that can provide the resources required to achieve the investment objective and meet the criteria stated above.

Financial and Liquidity Risk

As most of the investments require a mid to long-term commitment and are relatively illiquid, the Company retains a portion of the portfolio in cash or cash equivalents in order to finance any new unquoted investment opportunities. The Company has only limited direct exposure to currency risk and does not enter into any derivative transactions.

Economic Risk

The valuation of investment companies may be affected by underlying economic conditions such as fluctuating interest rates and the availability of bank finance.

Credit Risk

The Company may hold financial instruments and cash deposits and is dependent on counterparties discharging their agreed responsibilities. The Directors consider the creditworthiness of the counterparties to such instruments and seek to ensure that there is no undue concentration of exposure to any one party.

Internal Control Risk

The Board reviews regularly the system of internal controls, both financial and non-financial, operated by the Company and the Manager. These include controls designed to ensure that the Company's assets are safeguarded and that all records are complete and accurate.

VCT Qualifying Status Risk

The Company operates in a complex regulatory environment and faces a number of related risks, including:

-- becoming subject to capital gains tax on the sale of its investments as a result of a breach of Section 274 of the Income Tax Act 2007;

-- loss of VCT status and consequent loss of tax reliefs available to Shareholders as a result of a breach of the VCT Regulations;

-- loss of VCT status and reputational damage as a result of serious breach of other regulations such as the FCA Listing Rules and the Companies Act 2006; and

-- increased investment restrictions resulting from the EU State Aid Rules, enacted through the Finance Act (No. 2) 2015.

Legislative and Regulatory Risk

In order to maintain its approval as a VCT, the Company is required to comply with current VCT legislation in the UK as well as the EU State Aid Rules. Changes in the future to either legislation could have an adverse impact on Shareholder investment returns whilst maintaining the Company's VCT status. The Board and the Manager continue to make representations where appropriate, either directly or through relevant industry bodies such as the BVCA.

The Board has retained Philip Hare & Associates LLP as VCT Adviser to the Company.

Breaches of other regulations including, but not limited to, the Companies Act 2006, the FCA Listing Rules, the FCA Disclosure and Transparency Rules or the Alternative Investment Fund Managers Directive (AIFMD), could lead to a number of detrimental outcomes and reputational damage. Breaches of controls by service providers to the Company could also lead to reputational damage or loss.

The AIFMD introduced a new authorisation and supervisory regime for all investment companies in the EU. The Company was approved by the FCA as a self-managed UK AIFM under the AIFMD.

The Company is also required to comply with tax legislation under the Foreign Account Tax Compliance Act and the Common Reporting Standard. The Company has appointed Capita Asset Services to act on its behalf to report annually to HMRC and ensure compliance with this legislation.

Political Risk

In a referendum held on 23 June 2016, the UK voted to leave the EU (a process informally known as Brexit). The formal process of implementing this decision was contained within Article 50 of the Lisbon Treaty and the political, economic and legal consequences of the referendum vote are not yet known. It is possible that investments in the UK may be more subjective to value, may be more difficult to assess for suitability of risk, harder to buy or sell, or may be subject to greater or more frequent rises and falls in value. In the longer term, there is likely to be a period of uncertainty as the UK seeks to negotiate its exit from the EU. The UK's laws and regulations concerning funds may, in future, diverge from those of the EU. This could lead to changes in the operation of the Company, the rights of investors, or the territories in which the shares of the Company may be promoted and sold.

An explanation of certain economic and financial risks and how they are managed is also contained in Note 16 to the Financial Statements.

Statement of Compliance with Investment Policy

The Company is adhering to its stated investment policy and managing the risks arising from it. This can be seen in various tables and charts throughout the Annual Report, and from information provided in the Chairman's Statement and in the Investment Manager's Review. A review of the Company's business, its position as at 31 January 2017 and its performance during the year then ended is included in the Chairman's Statement, which also includes an overview of the Company's strategy and business model.

The management of the investment portfolio has been delegated to Maven Capital Partners UK LLP (Maven), which also provides company secretarial, administrative and financial management services to the Company. The Board is satisfied with the depth and breadth of the Manager's resources and its network of offices, which originate new deals and enable it to monitor the geographically widespread portfolio of companies effectively.

The Investment Portfolio Summary in the Annual Report discloses the investments in the portfolio and the degree of co-investment with other clients of the Manager. The tabular analysis of the unlisted and quoted portfolio in the Annual Report show that the portfolio is diversified across a variety of industry sectors and deal types. The level of VCT qualifying investment is monitored by the Manager on a daily basis and reported to the Risk Committee quarterly.

Key Performance Indicators

At each Board Meeting the Directors consider a number of financial performance measures to assess the Company's success in achieving its investment objective, and these also enable Shareholders and prospective investors to gain an understanding of its business. The key performance indicators are as follows:

   --      NAV total return; 
   --      dividend growth; 
   --      share price discount to NAV; 
   --      investment income; and 
   --      operational expenses. 

The NAV total return is a measure of the Shareholder value that includes current NAV per share and total dividends paid to date. The dividend growth measure shows how much of that Shareholder value has been returned to original investors in the form of dividends. A historical record of these measures is shown in the Financial Highlights in the Annual Report and the profile of the portfolio is reflected in the Summary of Investment Changes in the Annual Report. The Board reviews the Company's investment income and operational expenses on a quarterly basis as the Directors consider that both of these elements are important components in the generation of Shareholder returns.

There is no meaningful VCT index against which to compare the financial performance of the Company but, for reporting to the Board and Shareholders, the Manager uses comparisons with appropriate indices and the Company's peer group. The Directors also consider non-financial performance measures such as the flow of investment proposals and the Company's ranking within the VCT sector by independent analysts.

Consideration is also given to economic, regulatory and political trends and features that may impact on the Company's future development and performance.

Valuation Process

Investments held by Maven Income and Growth VCT 2 PLC in unquoted companies are valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines. Investments quoted or traded on a recognised stock exchange are valued at their bid prices.

Share Buy-backs

The Board will seek the necessary Shareholder authority to continue to conduct a share buy-back programme under appropriate circumstances.

Employee, Environmental and Human Rights Policy

The Company has no direct employee or environmental responsibilities, nor is it responsible for the emission of greenhouse gases. However, the Directors will consider economic, regulatory and political trends and features that may impact on the Company's future development and performance. The Board's principal responsibility to Shareholders is to ensure that the investment portfolio is managed and invested properly.

The management of the portfolio is undertaken by the Manager through members of its portfolio management team. The Manager engages with the Company's underlying investee companies in relation to their corporate governance practices and in developing their policies on social, community and environmental matters and further information may be found in the Statement of Corporate Governance. In light of the nature of the Company's business, there are no relevant human rights issues and, therefore, the Company does not have a human rights policy.

Independent Auditor

The Company's Independent Auditor is required to report if there are any material inconsistencies between the content of the Strategic Report and the Financial Statements. The Independent Auditor's Report can be found in the Annual Report.

Future Strategy

The Board and the Manager intend to maintain the policies set out above for the year ending 31 January 2018 as it is believed that these are in the best interests of Shareholders.

Approval

The Business Report, and the Strategic Report as a whole, was approved by the Board of Directors and signed on its behalf by:

John Lawrence MBE

Director

12 May 2017

Income Statement

For the Year Ended 31 January 2017

 
                                                  Year ended 31                 Year ended 31 
                                                   January 2017                  January 2016 
                                              Revenue   Capital     Total   Revenue   Capital       Total 
                                              GBP'000   GBP'000   GBP'000   GBP'000   GBP'000     GBP'000 
-------------------------------------------  --------  --------  --------  --------  --------  ---------- 
Gains on investments                                -     1,070     1,070         -     3,085     3,085 
Income from investments                           627         -       627     1,025         -     1,025 
Other income                                        4         -         4         -         -         - 
Investment management fees                       (70)     (632)     (702)     (116)   (1,041)   (1,157) 
Other expenses                                  (302)         -     (302)     (188)         -     (188) 
-------------------------------------------  --------  --------  --------  --------  --------  -------- 
Net return on ordinary activities 
 before taxation                                  259       438       697       721     2,044     2,765 
Tax on ordinary activities                       (51)      (51)         -     (119)       119         - 
-------------------------------------------  --------  --------  --------  --------  --------  -------- 
Return attributable to Equity Shareholders        208       489       697       602     2,163     2,765 
-------------------------------------------  --------  --------  --------  --------  --------  -------- 
 
  Earnings per share (pence)                     0.51      1.19      1.70      1.48      5.33      6.81 
-------------------------------------------  --------  --------  --------  --------  --------  -------- 
 
 

All gains and losses are recognised in the Income Statement.

All items in the above statement are derived from continuing operations. The Company has only one class of business and one reportable segment, the results of which are set out in the Income Statement and Balance Sheet. The Company derives its income from investments made in shares, securities and bank deposits.

There are no potentially dilutive capital instruments in issue and therefore no diluted returns per share figures are relevant. The basic and diluted earnings per share are therefore identical.

The total column of this Statement is the Profit and Loss Account of the Company.

Statement of Changes in Equity

For the Year Ended 31 January 2017

 
                               Share    Capital  Capital reserve         Special         Capital 
                     Share   premium    reserve       unrealised   distributable      redemption    Revenue 
                   capital   account   realised          GBP'000         reserve         reserve    reserve      Total 
                   GBP'000   GBP'000    GBP'000                          GBP'000         GBP'000    GBP'000    GBP'000 
---------------  ---------  --------  ---------  ---------------  --------------  --------------  ---------  --------- 
At 31 January 
 2016                4,109     9,473   (11,296)              821          17,842             295        526     21,770 
Net return               -         -        856            (367)               -               -        208        697 
Dividends paid 
 6                       -         -    (1,454)                -               -               -      (287)    (1,741) 
Repurchase and 
 cancellation 
 of shares            (51)         -          -                -           (224)              51          -      (224) 
---------------  ---------  --------  ---------  ---------------  --------------  --------------  ---------  --------- 
At 31 January 
 2017                4,058     9,473   (11,894)              454          17,618             346        447     20,502 
---------------  ---------  --------  ---------  ---------------  --------------  --------------  ---------  --------- 
 

For the Year Ended 31 January 2016

 
                               Share    Capital      Capital         Special      Capital 
                     Share   premium    reserve      reserve   distributable   redemption    Revenue 
                   capital   account   realised   unrealised         reserve      reserve    reserve      Total 
                   GBP'000   GBP'000    GBP'000      GBP'000         GBP'000      GBP'000    GBP'000    GBP'000 
---------------  ---------  --------  ---------  -----------  --------------  -----------  ---------  --------- 
At 31 January 
 2015                3,424     6,174   (11,223)        3,987          17,842          295        335     20,834 
Net return               -         -      5,329      (3,166)               -            -        602      2,765 
Dividends paid 
 6                       -         -    (5,402)            -               -            -      (411)    (5,813) 
Share issue 
 12                    685     3,299          -            -               -            -          -      3,984 
---------------  ---------  --------  ---------  -----------  --------------  -----------  ---------  --------- 

At 31 January 
 2016                4,109     9,473   (11,296)          821          17,842          295        526     21,770 
---------------  ---------  --------  ---------  -----------  --------------  -----------  ---------  --------- 
 
 

The accompanying Notes are an integral part of the Financial Statements.

Balance Sheet

As at 31 January 2017

 
                                 31 January 2017  31 January 2016 
                                         GBP'000          GBP'000 
-------------------------------  ---------------  --------------- 
Fixed assets 
Investments at fair value 
 through profit or loss                   17,111           21,591 
 
  Current assets 
Debtors                                      273              221 
Cash                                       3,334              688 
-------------------------------  ---------------  --------------- 
                                           3,607              909 
Creditors 
Amounts falling due within 
 one year                                  (216)            (730) 
-------------------------------  ---------------  --------------- 
Net current assets                         3,391              179 
-------------------------------  ---------------  --------------- 
Net assets                                20,502           21,770 
-------------------------------  ---------------  --------------- 
 
 
  Capital and reserves 
Called up share capital                    4,058            4,109 
Share premium account                      9,473            9,473 
Capital reserve - realised              (11,894)         (11,296) 
Capital reserve - unrealised                 454              821 
Special distributable reserve             17,618           17,842 
Capital redemption reserve                   346              295 
Revenue reserve                              447              526 
-------------------------------  ---------------  --------------- 
Net assets attributable 
 to Ordinary Shareholders                 20,502           21,770 
-------------------------------  ---------------  --------------- 
 
  Net asset value per Ordinary 
  Share (pence)                            50.52            52.98 
-------------------------------  ---------------  --------------- 
 

The Financial Statements of Maven Income and Growth VCT 2 PLC, registered number 4135802, were approved and authorised for issue by the Board of Directors on 12 May 2017 and were signed on its behalf by:

John Lawrence MBE

Director

The accompanying Notes are an integral part of the Financial Statements.

Cash Flow Statement

For the Year Ended 31 January 2017

 
                                    Year ended        Year ended 
                               31 January 2017   31 January 2016 
                                       GBP'000           GBP'000 
----------------------------  ----------------  ---------------- 
Net cash flows from 
 operating activities                  (1,516)           (1,034) 
 
  Cash flows from investing 
  activities 
Investment income received                 621             1,065 
Deposit interest received                    4                 - 
Purchase of investments                (5,492)          (27,006) 
Sale of investments                     10,994            28,244 
----------------------------  ----------------  ---------------- 
Net cash flows from 
 investing activities                    6,127             2,303 
----------------------------  ----------------  ---------------- 
 
  Cash flows from financing 
  activities 
Equity dividends paid                  (1,741)           (5,813) 
Issue of Ordinary Shares                     -             3,984 
Repurchase of Ordinary 
 Shares                                  (224)                 - 
----------------------------  ----------------  ---------------- 
Net cash flows from 
 financing activities                  (1,965)           (1,829) 
----------------------------  ----------------  ---------------- 
 
Net increase/(decrease) 
 in cash                                 2,646             (560) 
----------------------------  ----------------  ---------------- 
 
  Cash at beginning of 
  year                                     688             1,248 
Cash at end of year                      3,334               688 
 

The accompanying Notes are an integral part of the Financial Statements.

Notes to the Financial Statements

For the Year Ended 31 January 2017

1. Accounting Policies

   (a)        Basis of preparation 

The Financial Statements have been prepared under FRS 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland and in accordance with the Statement of Recommended Practice for Investment Trust Companies and Venture Capital Trusts (the SORP) issued by the AIC in November 2014.

   (b)        Income 

Dividends receivable on equity shares and unit trusts are treated as revenue for the period on an ex-dividend basis. Where no ex-dividend date is available dividends receivable on or before the year end are treated as revenue for the period. Provision is made for any dividends not expected to be received. The fixed returns on debt securities and non-equity shares are recognised on a time apportionment basis so as to reflect the effective interest rate on the debt securities and shares. Provision is made for any fixed income not expected to be received. Interest receivable from cash and short term deposits and interest payable are accrued to the end of the year.

   (c)        Expenses 

All expenses are accounted for on an accruals basis and charged to the Income Statement. Expenses are charged through the revenue account except as follows:

-- expenses which are incidental to the acquisition and disposal of an investment are charged to capital; and

-- expenses are charged to realised capital reserves where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect, the investment management fee has been allocated 10% to revenue and 90% to realised capital reserves to reflect the Company's investment policy and prospective income and capital growth.

   (d)        Taxation 

Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the balance sheet date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the Financial Statements which are capable of reversal in one or more subsequent periods.

Deferred tax is measured on a non-discounted basis at the tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date.

The tax effect of different items of income/gain and expenditure/loss is allocated between capital reserves and revenue account on the same basis as the particular item to which it relates using the Company's effective rate of tax for the period.

UK corporation tax is provided at amounts expected to be paid/recovered using the tax rates and laws that have been enacted or substantively enacted at the balance sheet date.

   (e)        Investments 

In valuing unlisted investments the Directors follow the criteria set out below. These procedures comply with the revised International Private Equity and Venture Capital Valuation Guidelines (IPEVCV) for the valuation of private equity and venture capital investments. Investments are recognised at their trade date and are designated by the Directors as fair value through profit and loss. At subsequent reporting dates, investments are valued at fair value, which represents the Directors' view of the amount for which an asset could be exchanged between knowledgeable and willing parties in an arm's length transaction. This does not assume that the underlying business is saleable at the reporting date or that its current shareholders have an intention to sell their holding in the near future.

A financial asset or liability is generally derecognised when the contract that gives rise to it is settled, sold, cancelled or expires.

1. For investments completed prior to the reporting date and those at an early stage in their development, fair value is determined using the Price of Recent Investment Method, except that adjustments are made when there has been a material change in the trading circumstances of the company or a substantial movement in the relevant sector of the stock market.

2. Whenever practical, recent investments will be valued by reference to a material arm's length transaction or a quoted price.

3. Mature companies are valued by applying a multiple to their prospective earnings to determine the enterprise value of the company.

3.1 To obtain a valuation of the total ordinary share capital held by management and the institutional investors, the value of third party debt, institutional loan stock, debentures and preference share capital is deducted from the enterprise value. The effect of any performance related mechanisms is taken into account when determining the value of the ordinary share capital.

3.2 Preference shares, debentures and loan stock are valued using the Price of Recent Investment Method. When a redemption premium has accrued, this will only be valued if there is a reasonable prospect of it being paid. Preference shares which carry a right to convert into ordinary share capital are valued at the higher of the Price of Recent Investment Method basis and the price/earnings basis, both described above.

4. In the absence of evidence of a deterioration, or strong defensible evidence of an increase in value, the fair value is determined to be that reported at the previous balance sheet date.

5. All unlisted investments are valued individually by the portfolio management team of Maven Capital Partners UK LLP. The resultant valuations are subject to detailed scrutiny and approval by the Directors of the Company.

6. In accordance with normal market practice, investments listed on the Alternative Investment Market or a recognised stock exchange are valued at their bid market price.

   (f)         Fair value measurement 

Fair value is defined as the price that the Company would receive upon selling an investment in a timely transaction to an independent buyer in the principal or the most advantageous market of the investment. A three-tier hierarchy has been established to maximise the use of observable market data and minimise the use of unobservable inputs and to establish classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable.

Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on best information available in the circumstances.

The three-tier hierarchy of inputs is summarised in the three broad levels listed below.

-- Level 1 - the unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

-- Level 2 - inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.

-- Level 3 - inputs are unobservable (ie for which market data is unavailable) for the asset or liability.

   (g)        Gains and losses on investments 

When the Company sells or revalues its investments during the year, any gains or losses arising are credited/charged to the Income Statement.

   (h)        Significant judgements and estimates 

Disclosure is required of judgements and estimates made by the Board and the Manager in applying the accounting policies that have a significant effect on the Financial Statements. The area involving the highest degree of judgement and estimates is the valuation of unlisted investments recognised in Note 8 and explained in Note 1 (e) above.

Reserves

Share premium account

The share premium account represents the premium above nominal value received by the Company on issuing shares net of issue costs.

Capital reserves

Gains or losses on investments realised in the year that have been recognised in the Income Statement are transferred to the capital reserve realised account on disposal. Furthermore, any prior unrealised gains or losses on such investments are transferred from the capital reserve unrealised account to the capital reserve realised account on disposal. Increases and decreases in the fair value of investments are recognised in the Income Statement and are then transferred to the capital reserve unrealised account. The capital reserve realised account also represents capital dividends, capital investment management fees and the tax effect of capital items.

Special distributable reserve

The total cost to the Company of the repurchase and cancellation of shares is represented in the special distributable reserve account.

Capital redemption reserve

The nominal value of shares repurchased and cancelled is represented in the capital redemption reserve.

Revenue reserve

The revenue reserve represents accumulated profits retained by the Company that have not been distributed to Shareholders as a dividend.

Earnings per share

 
                          Year ended 31 January  Year ended 31 
                                           2017   January 2016 
------------------------  ---------------------  ------------- 
The returns per share 
 have been based on the 
 following figures: 
Weighted average number 
 of Ordinary Shares                  40,948,352     40,602,938 
Revenue return                       GBP208,000     GBP602,000 
Capital return                       GBP489,000   GBP2,163,000 
------------------------  ---------------------  ------------- 
Total return                         GBP697,000   GBP2,765,000 
------------------------  ---------------------  ------------- 
 

NAV per Ordinary Share

NAV per Ordinary Share as at 31 January 2017 has been calculated using the number of Ordinary Shares in issue at that date of 40,584,617 (2016: 41,089,617).

Directors' Responsibility Statement

The Directors believe that, to the best of their knowledge:

-- the Financial Statements have been prepared in accordance with the applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company as at 31 January 2017 and for the year to that date;

-- the Directors' Report includes a fair review of the development and performance of the Company, together with a description of the principal risks and uncertainties that it faces; and

-- the Annual Report and Financial Statements taken as a whole is fair, balanced and understandable and provides the information necessary to assess the Company's position and performance, business model and strategy.

Other Information

The Annual General Meeting will be held on Wednesday 14 June 2017, commencing at 10.30am, at Maven Capital Partners UK LLP, Fifth Floor, 1-2 Royal Exchange Buildings, London EC3V 3LF.

Copies of this announcement, and of the Annual Report and Financial Statements for the year ended 31 January 2017, will be available to the public at the offices of Maven Capital Partners UK LLP, Kintyre House, 205 West George Street, Glasgow G2 2LW; at the registered office of the Company, Fifth Floor, 1-2 Royal Exchange Buildings, London EC3V 3LF and on the Company's website at www.mavencp.com/migvct2.

The Annual Report and Financial Statements for the year ended 31 January 2017 will be issued to Shareholders and filed with the Registrar of Companies in due course.

The financial information contained within this Announcement does not constitute the Company's statutory Financial Statements as defined in the Companies Act 2006. The statutory Financial Statements for the year ended 31 January 2016 have been delivered to the Registrar of Companies and contained an audit report which was unqualified and did not constitute statements under S498(2) or S498(3) of the Companies Act 2006.

Neither the content of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

The Annual Report will be submitted to the National Storage Mechanism and will be available for inspection at: www.morningstar.co.uk/uk/NSM.

By order of the Board

Maven Capital Partners UK LLP

Secretary

12 May 2017

This information is provided by RNS

The company news service from the London Stock Exchange

END

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May 12, 2017 11:32 ET (15:32 GMT)